Atkore Inc.'s (NYSE:ATKR) Price Is Right But Growth Is Lacking

With a price-to-earnings (or "P/E") ratio of 6.5x Atkore Inc. (NYSE:ATKR) may be sending very bullish signals at the moment, given that almost half of all companies in the United States have P/E ratios greater than 19x and even P/E's higher than 34x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Atkore's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Atkore

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Atkore.

Is There Any Growth For Atkore?

The only time you'd be truly comfortable seeing a P/E as depressed as Atkore's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.0% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 15% each year as estimated by the seven analysts watching the company. With the market predicted to deliver 11% growth per year, that's a disappointing outcome.

With this information, we are not surprised that Atkore is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Atkore maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Atkore (1 shouldn't be ignored) you should be aware of.

You might be able to find a better investment than Atkore. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.